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Trinity Rides on Solid North American Rail Traffic Volume

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On Jun 20, we initiated coverage on Trinity Industries, Inc. (TRN - Free Report) .

The company has been benefitting from impressive growth of North America’s rail traffic volume. In fact, the North American rail traffic volume was strong during the first quarter of 2018 despite bad weather conditions and service related challenges affecting the rail system’s fluidity.

Notably, more than 25,000 railcars, which were idle previously, became operational during the period. The resumption of service boosted the North American railcar active fleet. Moreover, demand for rail cars is likely to rise on the back of industrial production gathering steam and consistent business investments.

Growth of the company’s rail lease fleet is encouraging as well. Trinity’s owned and managed fleet increased 13% year over year to approximately 119,000 railcars at the end of the first quarter of 2018.

 
The company’s shareholder-friendly measures are also impressive. Last December, the company’s board authorized a $500-million worth new share repurchase program. During the first quarter, the company repurchased 1.52 million shares for $50 million. It still has $450 million shares left under its current authorization to be bought back through December 2019. Moreover, the company has paid dividends for 217 consecutive quarters. Last May, the company hiked its payout by 18%.

The new tax law is also a big boon to the company. Trinity’s earnings in the first quarter got a boost from reduced effective tax rate of 26.2% compared with 28.7% during the first quarter of 2017. The same is anticipated to buoy the company’s full-year earnings, courtesy of its projection of 24% full-year effective tax rate compared with 36.2%, last year.

However, the company’s top line in the second quarter might be hurt by lower railcar lease rates. Even though lease rates are believed to be increasing from the recent drop, it still remains below the expiring leases.

Zacks Rank & Other Key Picks

Trinity holds a Zacks Rank #2 (Buy). Other top-ranked stocks in the broader Transportation sector include GATX Corporation (GATX - Free Report) , SkyWest, Inc. (SKYW - Free Report) and Expeditors International of Washington, Inc. (EXPD - Free Report) .  While GATX and SkyWest carry a Zacks Rank of 2, Expeditors sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past six months, shares of GATX and Expeditors have rallied more than 17% and 18%, respectively, while SkyWest stock has gained above 5%.

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